ROME (Dow Jones)--Italian banks may need to bolster their equity and authorities may need to make sure they do so without triggering a credit crunch, the Financial Stability Board said in its peer review of Italy published late Monday.
"Further strengthening the capital base of the banking sector, without undermining the supply of credit to the economy, may require the authorities' attention going forward," said the FSB, a global body presided over by Bank of Italy Governor Mario Draghi.
The Italian financial system showed "much resilience"" to the recent global financial crisis, due to its predominant relationship-oriented business model and stable retail funding bases as well as conservative mortgage lending practices and a prudent supervisory framework that discouraged banks from participating in complex securitization activities and off-balance sheet vehicles
Italian banks should be the "first movers" in a pan-European process of recapitalization of bank balance sheets, Mediobanca said in a lengthy report published Monday.
Mediobanca downgraded the European backing sector to underperform from neutral, saying the strong share-price rally so far this year may be overdone as new Basel III capital rules will reduce profitability.
"Denial is futile," said Mediobanca analyst Antonio Guglielmo, adding that the sector will likely be driven this year by moving "from denial to contrition" on regulation, "from liquidity to solvency" on sovereign-debt issues and "from postpone to execute" on calls for recapitalization.
Source: http://online.wsj.com
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